A lot of people that do not have estate plans in place know that they should take action, but they are stalled by a lack of information. With this in mind, we are going to share four tips that will help you plan your estate effectively.
You probably don’t have to be concerned about taxation.
Since the IRS is all about your money, you may assume that taxation will be a major source of concern when you plan your estate. In fact, the tax situation is quite favorable for most people.
A direct inheritance that is received through the terms of a will is not subject to taxation, and this would also apply to insurance policy proceeds. Distributions of the principal from a living trust are tax-free, but distributions of the earnings are taxable.
Traditional individual retirement accounts are funded with pretax earnings, so distributions to the beneficiary would be taxable income. Roth IRA contributions are made after taxes have been paid, so the distributions to the beneficiary would be tax-free.
Inherited assets that appreciated during the life of the decedent get a step-up in basis. The inheritor would not be required to pay capital gains taxes on the gains that accumulated before they inherited the assets.
There is a federal estate tax in the United States, but it is only applicable on the portion of an estate that exceeds the exclusion. In 2023, the exclusion is $12.09 million.
State-level estate taxes are a factor in 12 states, but California is not one of them. However, if you own valuable property in a state with an estate tax, the tax will apply to your estate if its value exceeds the exclusion in that state.
Steer clear do-it-yourself estate planning sites.
There are websites that sell boilerplate wills and trusts. They contend that you simply fill in the blanks and you are good to go.
In reality, when something sounds too good to be true, it probably is, and this applies to DIY estate planning. When you are arranging for the transfer of everything you have accumulated to the people you love the most, should you really take risks with boilerplate documents?
It can be tempting to embrace a so-called “simple solution,” but estate planning is really not a suitable DIY project.
A living trust is better than a simple will in most cases.
Many people assume that a simple will is the estate planning document you should use unless you are extremely wealthy. In fact, the revocable living trust is a far better choice in a number of ways.
You would act as the trustee while you are living, so you would have total access to the resources, and you would retain the right of revocation. The trust can be amended at any time, so there is a great deal of flexibility.
When you are drawing up the trust, you name a trustee to act as the administrator after you are gone, and your heirs would be the beneficiaries. You can include a spendthrift provision, and the creditors of the beneficiaries would not be able to touch the principal.
If you want to limit the spending ability of the beneficiaries, you can instruct the trustee to distribute a certain amount each month, or you could provide distributions of the trust’s earnings.
A will would be admitted to probate, which is a costly, time-consuming. and public legal process that bogs down the estate administration phase. The administration of a living trust is not subject to probate, so the negatives are avoided.
Take action today!
This the most important tip of all: Action is required if you are currently unprepared from an estate planning perspective.
Each situation is different, and there is no universal approach that is right for everyone. Your plan should be custom crafted to ideally suit your needs, and we can apprise you of your options so you can make the right choices.
If you are ready to get started, you can schedule an appointment at our Burbank, CA estate planning office if you call us at 818-937-2335. There is also a contact form on this site you can use to send us a message, and if you reach out electronically, you will receive a prompt response.